Sources of Firm Life-Cycle Dynamics: Differentiating Size vs. Age Effects

Lorenz Kueng, Mu-Jeung Yang and Bryan Hong

No 20621, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What determines firm growth over the life-cycle? Exploiting unique firm panel data on internal organization, balance sheets and innovation, representative of the entire Canadian economy, we study recent theories that examine life-cycle patterns for firm growth. These theories include organizational capital accumulation and management practices, financial frictions, learning about demand, and recent endogenous growth models with incumbent innovation. We emphasize the importance of differentiating between pure age effects of these theories and effects on size conditional on age. Our stylized facts highlight both empirical successes and shortcomings of current theory. First, models of organizational capital and innovation are broadly consistent with firm size correlations conditional on age but have difficulties matching the life-cycle dynamics of firm organization and innovation. Second, among theories we analyze, organizational capital and management practices are the most important determinants to explain intensive margin firm growth over the life-cycle. Third, although less important to explain intensive margin firm growth, financial frictions are an important determinant of firm exit, conditional on firm age.

JEL-codes: D2 D22 D23 D24 D9 D92 E20 E24 E32 F23 G3 G32 M1 M5 O3 O4 O47 O51 (search for similar items in EconPapers)
Date: 2014-10
New Economics Papers: this item is included in nep-bec, nep-cse, nep-mac and nep-sbm
Note: CF EFG PR
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Citations: View citations in EconPapers (14)

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